Report calls out failure of political system to ensure intergenerational equity
Sydney, 5 December 2016 -- Ahead of the release of the Federal Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) on 19 December, the peak accounting professional body Chartered Accountants Australia and New Zealand (CAANZ), has today called for Australia to establish an independent body to monitor and report on the long-term position of the Federal budget.
Independent monitoring of the budget, which CAANZ suggests could be managed by the Parliamentary Budget Office (PBO), would be supported by a requirement that governments forecast the fiscal implications of key policy decisions over 10 years.
In a new paper Public Debt & Deficits, CAANZ argues that Australian policy debate has become overly consumed by debt and deficits – and the size of government - at the expense of policy flexibility in addressing long-term economic challenges.
It says the four-year Budget Estimates horizon that the Federal and State Governments rely on to frame fiscal policy currently is too limited, and is urging a new institutional focus on understanding the cyclical and structural aspects of budget deficits.
According to Rob Ward, Head of Leadership & Advocacy at CAANZ, such an approach would correct the failure of the political economy to prosecute policy in Australia’s long-term economic interests.
“Australian governments are too often guilty of using crude instruments, such as the size of government or the deficit, to prosecute economic arguments. Australians rightly should, and do, expect sounder economic leadership from our policymakers,” Mr Ward said.
Public Debt & Deficits highlights the tax cuts implemented during the temporary mining boom a decade ago and the stimulus measures passed at the onset of the GFC as examples of policies created with little regard as to their long-term fiscal impact.
“The legacy of these policies is evident in political debate today, which is too often consumed by debt and deficit to the exclusion of all else. It overlooks the fact that not all debt is bad and that some debt, if deployed well, can lead to better intergenerational equity outcomes in the future,” Mr Ward said.
“Infrastructure is a good example - a huge debt was incurred in the 1920s to develop the Sydney Harbour Bridge, to create an asset that remains critical to Sydney’s economy today.”
The CAANZ paper argues that an agency independent of Treasury and other central agencies should be tasked with the role of defining the long-term structural budget balance (SBB) and assessing the impact of proposed policy measures over a 10-year timeframe.
While it says the PBO is readymade for this role, the job could also be performed by a new body similar to Britain’s Institute for Fiscal Studies or the German Council of Economic Experts (Germany’s ‘Wise Men’).
As part of its role monitoring long-term pressures on the Budget, the PBO or newly charged body would be mandated to develop independent estimates of the fiscal impact of key new policy decisions over a 10-year period compared to alternative scenarios.
CAANZ is also calling for the Government to put aside the size of government as an outdated, irrelevant fiscal rule.
“The size of government should not be used as a fiscal rule, as the optimal size of government will, and does, change over time as service delivery, administrative needs and economic conditions dictate,” Mr Ward said.
“Governments need to initiate a public debate on the appropriate size of the government, which is entirely separate from fiscal debate and focused on the needs of the public,” he said.
To obtain a full copy of the report, or to speak with Chartered Accountants’ Rob Ward, contact:
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